by Calculated Risk on 10/19/2007 08:34:00 AM

From the WSJ: Wachovia's Net Falls 10% On Loan-Loss Provisions

Wachovia Corp.'s third-quarter net income dropped 10% as loan-loss provisions quadrupled and the company recorded $1.3 billion in losses and write-downs. Wachovia also signaled increasing credit troubles ahead.
...
Loan-loss provisions surged to $408 million from $108 million amid growth in auto, commercial and consumer real estate lending. Net charge-offs were 0.19% of average net loans, compared with 0.16% a year earlier. Nonperforming assets, troubled loans that could turn into charge-offs, more than doubled to 0.63% of loans from 0.26%.

by Calculated Risk on 10/19/2007 02:08:00 AM

From the WaPo: Capital One Reports Loss From Closing Mortgage Unit

Capital One Financial of McLean posted its first quarterly loss ever, from the expense of shutting down its mortgage lender, and warned of additional challenges in the credit card and auto finance businesses.
...
Yesterday's announcement offered a glimpse into how the credit crunch might affect other areas of lending.

Capital One reported an increasing number of delinquencies and defaults in both the credit card and auto finance sectors. As a result, the company said its expenses associated with covering bad loans have increased.
...
There are signs that the collapse in the mortgage markets has taken a toll on consumer spending, said Scott Hoyt, director of consumer economics at Moody's Economy.com.
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"If [credit card issuers] were to cut back significantly, that would have the potential to be a blow to spending," he said.

by Calculated Risk on 10/19/2007 12:06:00 AM

From the WSJ: Citi's SIVs: Staving Off a Fire Sale

Executives of Citigroup Inc. say the giant bank has secured funding through year end for the $80 billion in structured investment vehicles it manages after selling $20 billion in assets since the midsummer credit crunch.

The steps taken by the bank's alternative-asset management unit ... mean the Citigroup SIVs can avoid the kind of forced selling at distressed prices begun by some other European SIV managers ...
...
Mr. Havens of Citigroup said in an interview the Citi SIVs have in the past week or so been able to sell "many billions of dollars" of short-term debt known as commercial paper "to top-tier-name institutions."

And the following article on SIVs is excellent: How London Created a Snarl In Global Markets

The ... bankers hatched the idea of setting up a fund that would issue short-term commercial paper and medium-term notes to investors, then use the money to buy higher-yielding assets, typically longer-term ones. The bank would profit by collecting fees for operating the fund. The fund's assets would belong to its investors, so they would stay off the bank's balance sheet. SIVs had an advantage over conduits, a similar structure that was already gaining popularity: They didn't require banks to cover fully the fund's debts if the commercial-paper market dried up.

by Calculated Risk on 10/18/2007 05:58:00 PM

Click on graph for larger image.

Source: Cleveland Fed, Fed Funds Rate Predictions

The market now expects a 25bps rate cut to 4.5% at the upcoming meeting.

by Calculated Risk on 10/18/2007 03:36:00 PM

From Bloomberg: Rhinebridge Commercial Paper SIV Says May Be Unable to Pay Debt (hat tip julian)

Rhinebridge Plc, a structured investment vehicle run by IKB Deutsche Industriebank AG, said it may not be able to pay back debt related to $23 billion in commercial paper programs.

Rhinebridge suffered a ``mandatory acceleration event'' after IKB's asset management arm determined the SIV may be unable to repay debt coming due, the Dublin-based fund said in a Regulatory News Service release. A mandatory acceleration event means all of the SIV's debt is now due...

Just yesterday, the Cheyne Finance receiver said: "In our view people should not take this as a precedent for other SIVs." Uh, nevermind.

by Calculated Risk on 10/18/2007 03:01:00 PM

From DataQuick: Bay Area home sales plummet amid mortgage woes

Bay Area home sales sank to their lowest level in more than two decades in September, the result of a continuing market slowdown and borrowers' increased difficulties in obtaining "jumbo" mortgages, a real estate information service reported.

A total of 5,014 new and resale houses and condos were sold in the nine-county Bay Area in September. That was down 31.3 percent from 7,299 in August, and down 40.1 percent from 8,374 for September a year ago, DataQuick Information Systems reported.

Sales have decreased on a year-over-year basis the last 32 months. Last month was the slowest September in DataQuick's statistics, which go back to 1988. Until last month, the slowest September was in 1991 when 5,735 homes were sold. The strongest September was in 2004 when sales totaled 12,868. The average for the month is 8,961.

"A lot of escrows just didn't close in September because the buyers couldn't get financing. Some of those sales might close this month or next, but many of the deals are going to be put on hold or die on the vine. Jumbo financing has become more available the last few weeks, but lenders are being more cautious than before, and the loans cost more," said Marshall Prentice, DataQuick president.

The number of Bay Area homes purchased with jumbo mortgages dropped from 3,762 in August to 1,935 in September, a decline of 48.6 percent. A jumbo mortgage is a home loan for $417,000 or more. For loans below that threshold, the sales decline was 14.0 percent, from 2,675 in August to 2,301 in September. Historically, sales drop by about 10 percent from August to September.

The median price paid for a Bay Area home was $625,000 last month, down 4.6 percent from $655,000 in August, and up 0.8 percent from $620,000 for September last year.
...
Foreclosure activity is at record levels.

by Calculated Risk on 10/18/2007 11:48:00 AM

Quotes of the day from WaMu (via Seattle Times):

"This is perhaps the most challenging cycle for housing that we've seen in many decades," WaMu Chief Executive Kerry Killinger said in an interview. He and other WaMu executives said they don't see any improvement in the near term.

And from the WaMu CFO:

"I have never seen housing credit conditions change so significantly over such a short period of time, nor can I remember a period when there was less clarity about near-term housing and credit trends," [Chief Financial Officer Tom] Casey said

by Calculated Risk on 10/18/2007 10:15:00 AM

From MarketWatch: Bank of America's quarterly profit falls 32%

Bank of America Corp.'s third-quarter net income fell 32% from a year ago as trading losses, write-downs on a wide variety of loans and soaring reserves for likely future loan losses undermined profit, financial results showed Thursday.

The last of the nation's top three banks to report results this week, the Charlotte, N.C.-based company chalked up big charges due to credit-related turmoil, suggesting that the problems in the credit market may yet be closer to the beginning than to the end.
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"The company also added reserves for its home equity and homebuilder loan portfolios in view of the impact of the weakened U.S. housing market," [from BofA statement] emphasis added

by Anonymous on 10/18/2007 09:38:00 AM

Shall we start a pool on whether Congress caves in or not? National Mortgage News via absnet.com:

The Department of Housing and Urban Development has stuck to its guns regarding seller-funded downpayment assistance on Federal Housing Administration-insured mortgages. But third-party conduits which funnel financial aid from buyers to sellers are not going away without a fight.

Practically before the ink was dry last week on the final rule prohibiting anyone except family members, employers, government entities or true charitable organizations from giving would-be buyers money to cover the 3% downpayment required on FHA loans, the two largest DPA providers filed separate suits in Federal Court seeking to overturn the controversial rule.

Scott Syphax, president of the Nehemiah Corp., Sacramento, Calif., called the rule "outrageous," saying it removes practically the only "lifeline" left for working families to achieve ownership.

"Privately funded downpayment assistance programs have helped over 600,000 families become home owners and have been credited not only for helping people buy homes, but also stabilizing neighborhoods and cities and creating stronger families," he said.

AmeriDream, Gaithersburg, Md., another major DPA provider, expressed "great confidence" on its website that HUD will be overturned in court. "HUD's action makes no sense," said chair Ann Ashburn.

Several lawmakers also cried foul, as did the Mortgage Bankers Association and the U.S. Conference of Mayors.

In an interview with Bloomberg News, Rep. Al Green, D-Texas, said the program "could have been fixed and need not have been nixed." Reps. Gary Miller, R-Calif., and Maxine Waters, D-Calif., joined Rep. Green in registering their disapproval and calling on HUD to correct whatever problems exist in the program rather than simply can it.

"If there are concerns with certain downpayment assistance providers, HUD should address these individual providers, and put the controls in place to weed out the bad actors, rather than completely eliminating a program that has successfully expanded homeownership opportunities for millions of families," the three congressmen said.

They also vowed "to fight every effort to eliminate rather than reform this important tool that has built financial strength and formed lasting communities."

Nevertheless, unless the court or Congress goes against HUD - the House-passed FHA reform bill sets new standards for DPA providers but the Senate Finance Committee's version prohibits such assistance - the prohibition that bans anyone who has a stake in the transaction from providing buyers with cash for a downpayment takes effect Nov. 1. . . .

Mr. Montgomery told reporters during an unusual conference call set up by HUD - "We wanted to give you folks a little advance notice," he said at the outset - that nonprofits can still provide downpayment assistance in the form of a gift "so long as they don't collect 'donations' from sellers."

And therein lies the rub, the FHA commissioner said, for in most cases, there is "a clear quid pro quo" between the purchase of a house and the seller's "contribution."

The so-called gift often functions as an incentive to buy the house, the FHA contends, but the gift is ultimately paid for by the buyer through a higher mortgage amount because sellers tend to raise their asking prices to cover the amount they are giving away.

Mr. Montgomery said in the current slow housing market, sellers are "more willing than ever to participate" in these programs, even though they "circumvent our restrictions" and buyers "are often unaware that the gift is something they end up paying for and not a gift at all."

The FHA also maintains that loans to those who rely on seller-funded don't perform nearly as well as they should. Indeed, the agency says they are almost two and a half times more likely to fail than other FHA-insured mortgages.

by Anonymous on 10/18/2007 09:15:00 AM

Michelle Singletary goes after college-sponsored programs to load students up with credit cards:

In a 2004 study of credit card usage by undergraduates, 56 percent of freshmen reported that they had obtained their first card at the age of 18. The student loan lender Nellie Mae, which conducted the study, said that as students progress through school, their credit card usage swells.

By the time they reach their senior year, 56 percent of students carry four or more cards, with an average balance of $2,864. Of course, some have much more than that. . . .

Not surprisingly, in the Nellie Mae report, only 21 percent of undergraduates with credit cards reported that they paid off all cards each month, and 11 percent said they made less than the minimum required payment each month.

Giving a college student one low-balance card as a form of "starter credit" is, possibly, defensible. Giving a college student four cards? That's the kind of extra credit that prepares them to be subprime borrowers for the rest of their lives.